Welcome to the March 2023 edition of the Political Law Playbook. This month’s coverage highlights reports and statistics on campaign finance and lobbying spending trends at the federal level, including record spending in the 2022 midterm elections and chart-topping advocacy spending by critical industries. The recent collapse of cryptocurrency exchange FTX, which filed for bankruptcy in 2022 amid the criminal prosecution of its founder Samuel Bankman-Fried, has also spilled over into the campaign finance realm. Last month, FTX’s debtors requested the return of any political contributions made by the company or its officers by February 28, 2023, or risk being dragged into bankruptcy court. 

At the state level, the Montana and Tennessee legislatures are considering measures to strengthen campaign finance disclosure requirements to increase transparency in election spending, while West Virginia has two pending proposals to raise the registration and reporting thresholds for grassroots lobbying and independent expenditure activities within the state.  The Los Angeles City Council is also poised to reform its Municipal Lobbying Ordinance at the recommendation of its ad hoc governance reform committee, which proposes replacing the current time-based lobbying registration threshold with a $5,000 compensation threshold, in addition to adding a gift prohibition for clients of lobbyists. Finally, a panel of the U.S. Court of Appeals for the 10th Circuit has weighed in on a legal challenge to the State of Colorado’s low contribution limits, holding that they do not violate free speech rights and may be enforced.

Federal Elections & Campaign Finance

Midterm Spending Spree –  Spending reports from the 2022 midterm elections show that campaigns, political parties, and outside groups funneled over $8.9 billion into campaign efforts throughout the cycle – making 2022 the most expensive midterm yet. Critics attribute the spending boom to “lax campaign finance regulations” in the wake of Citizens United, and project that spending records will be smashed yet again in 2024. Several trends in 2022 election spending show a shift in political strategy from both parties – for example, committees supporting Democratic candidates tended to spend heavily on staff and media, while Republican groups focused heavily on fundraising activities. Data also shows that the average cost of a Senate seat increased by nearly $3 million from 2018 to 2022, while the cost of a Congressional seat actually decreased. Despite inflation, 2022 Congressional candidates only raised an average of $1.8 million for the cycle compared to an average of $1.9 million in 2018.

FTX Debtors Seek Return of Campaign Contribution Funds – FTX, once one of the largest cryptocurrency exchanges in the world, collapsed and filed for bankruptcy in November 2022. Since this time, the company’s founder and former CEO Samuel Bankman-Fried has been indicted on multiple allegations involving the misuse of customer accounts for self-enrichment, venture investments, and influence peddling with US politicians. With bankruptcy proceeding just beginning for FTX, its debtors recently began contacting political figures, political action funds, and other organizations to whom the company made contributions or payments to at the direction of Bankman-Fried, its principals, or its officers. The debtors informed recipients of such contributions that they have until February 28, 2023 to voluntarily return funds paid to them before efforts are undertaken in the FTX bankruptcy proceeding to claw the back using legal authority.

Legal Loophole Allowed Creation of a Recount Fund, Despite No Recount Election – A good governance group has filed an FEC complaint calling for an investigation into the Devolder-Santos for Congress Recount (DSCR) Fund, an election recount fund created after Congressman George Santos’ first bid for office in 2020, despite the fact that no recount process ever took place. The complaint highlights a loophole in current federal regulations that permits candidates to create, fundraise, and spend money in connection with a recount fund with little oversight.  Complainants allege that contributions to the DSCR Fund, which generally should be used to defray recount and election contest expenses, were used to cover personal and supplemental campaign expenses wholly unrelated to any electoral recount. The complaint is presently under review by the Commission.

Federal Lobbying & Ethics

Big Spending On Federal Lobbying In Critical Industries – In a year that saw over $4.1 billion in spending on federal lobbying activities across all industry areas, significant increases were seen in the government affairs budgets of companies in heavily regulated economic areas, such as energy, health care, biotech and technology. The significant financial investments of leading industries in lobbying efforts demonstrates the importance of policy engagement to overall business strategy in a post-COVID Washington, and likewise a commitment to engaging with legislators and executive branch personnel to facilitate legal and regulatory changes that benefit consumers and companies alike. 

Foreign Agents Registration Act (FARA)

DOJ Drops Probe into Retired General and Former Brookings President for FARA Violations – The Department of Justice (DOJ) recently dropped its investigation into retired four-star general John Allen for potential violations of the Foreign Agents Registration Act (FARA). According to media reports, Allen had allegedly engaged in lobbying on behalf of Qatar without registering as an agent under FARA during his time as president of the Brookings Institution, which receives funding from the Qatari government. Earlier last month, the FARA Unit announced the close of its investigation into the accusations against Allen and indicated that it would not be bringing any criminal or civil charges against the former military leader. The government did not identify specific reasons for the matter’s closure, but the initiation of the preliminary probe is yet another recent example of the increased scrutiny DOJ is applying to acts of potential influence perpetrated by nonprofits funded by and/or affiliated with foreign governments.

Non-Federal Elections & Campaign Finance

Revising Montana Campaign Laws – Montana’s House State Administration Committee reviewed two bills last month proposing reforms to current campaign finance disclosure laws in the state. The first piece of proposed legislation (H.B. 341) would, if passed, simplify disclaimer requirements for political advertisements in the state. In contrast, the second proposed bill (H.B. 378) would, if passed, impose a penalty regime under state law against candidates who fail to comply with business and campaign finance disclosure requirements – including removing noncompliant candidates from the general election ballot. While both measures bear monitoring, it appears that neither are likely to pass the legislature this session as the first bill has been tabled for further review and consideration and the second bill has failed to move forward to a reading on the legislative floor.

North Dakota Lawmakers Toss Bills To Boost Campaign Finance Transparency – Several  pieces of potential legislation purportedly designed to increase transparency in state elections recently failed to advance in the North Dakota legislature. The two bills – one targeting disclosure of dark money in political advertising and the other targeting multicandidate committee reporting obligations – came under fire from state legislators due to free speech concerns. Despite their failure to advance in this legislative session, both measures did garner a modest amount of bipartisan support, which suggests that long-standing opposition to campaign finance transparency legislation may be softening slightly among some Republican members of the North Dakota State House.

West Virginia Considers Lowering Contribution Disclosure Thresholds – The West Virginia Senate passed two new pieces of legislation last month that would raise reporting thresholds for grassroots lobbying and independent expenditure activity in the state. Currently, West Virginia requires any person spending over $500 during a three-month period or over $200 in one month to motivate the public to influence legislation to register as a sponsor of a grassroots lobbying campaign and disclose donors giving over $25 toward the effort. If signed into law, Senate Bill 508 would raise these reporting thresholds to $5,000 and $1,000 for grassroots lobbying registration, and would increase the donor disclosure threshold to $1,000. Similarly, Senate Bill 516 would raise the disclosure threshold for independent expenditure reporting in the state to $1,000 – a significant increase from the current $250 reporting trigger.

Tennessee Legislature Takes Up Campaign Finance and Election Reform Bills in 2023 Session – The Tennessee state legislature has lined up several proposed changes to its current campaign finance framework for review and discussion this legislative session, including bills addressing: disclosure exemptions for religious organizations making expenditures to influence ballot measures; the permissibility of state campaign fund use for child care expenses; and the shift of reporting and enforcement responsibilities from local government bodies to the state registry of election finance. One of the proposed bills under consideration would also designate political campaign committees and multicandidate political campaign as “political action committees” under state law, while another would prevent state political parties from charging fees to candidates who seek to run for office as a party candidate.

New Illinois Supreme Court Justices Got Major Boost From Hidden Spending By Democrat Group – Independent-expenditure group All for Justice failed to file timely campaign finance reports disclosing the $7.3 million it spent helping Democrat justices get elected to the Illinois Supreme Court in 2022. According to media reports, All for Justice failed to file 35 required public disclosure reports during the last cycle, including certain quarterly financial statements and other ad hoc disclosure statements for each independent expenditure it made over $1,000 in support of various justices. Due to its alleged transparency shortcomings last year, the group’s significant spending was not revealed to the public until it filed a 2022 fourth quarter disclosure report in January 2023. While All for Justice has since updated and amended its reporting record to correct its disclosure shortcomings, detractors characterized the group’s actions as an overt maneuvering around state disclosure laws designed to shield its engagement activity. 

Non-Federal Lobbying & Ethics

When Chiefs Play, Lobbyists Pay To Get Missouri And Kansas Politicians Into Big Games – According to a recent media review of public disclosure filings associated with public officials in the greater Kansas City area, government employees from both Kansas and Missouri have received more than $30,000 since 2017 in Chiefs tickets, food, parking, and other team-related gifts from lobbyists hoping to build relationships. Two of the biggest gift-givers during this five-year period were utility companies Evergy and Spire, both of which have frequent business in front of local government officials, and both of which are greatly invested in working to shape the City of Kansas City’s recent Climate Protection & Resiliency Plan seeking carbon neutrality by 2040. While the “Clean Missouri” initiative prevents state lawmakers from accepting lobbyist gifts, the prohibition does not apply to local and municipal officials—meaning officials like Kansas City Mayor Quinton Lucas are free to accept Chiefs tickets and related gifts as long as he complies with applicable reporting obligations. Kansas has fewer restrictions on lobbyist gifts, allowing state officials to accept benefits from lobbyists so long as no provider exceeds the $100 gift cap.

Pennsylvania Governor Characterizes Courtside Sixers Tickets as “Political Meeting” – Last month, Pennsylvania Governor Josh Shapiro sparked a debate on Pennsylvania’s lax gift and ethics laws when he sat courtside at a Philadelphia 76ers game next to Darren Check, his former inaugural committee co-chair and campaign donor. Governor Shapiro’s team characterized the outing as a political meeting and stated that the $3,000 tickets would be reported as an in-kind campaign contribution, a classification for contributions of goods or services to a campaign rather than a monetary donation that requires less disclosure than gifts. Pennsylvania typically requires public officials to disclose gifts, their value, and the source of the gift on annual statements of interest, but some observers argue that the tickets would not be classified as a gift because Check had no business pending in the state that Governor Shapiro could influence. The lack of state guidance on campaign contributions versus gifts highlights loopholes in Pennsylvania state ethics laws that permit a level of access to politicians that, according to critics, minimizes the trust between voters and their government.

Stricter Lobbying Rules in Los Angeles – The Los Angeles City Council’s ad hoc committee on governance reform recently made a formal recommendation that the city approve several proposed updates to the Municipal Lobbying Ordinance. This is the first significant step by the City Council toward reforming the ordinance since 1994. The recommended updates include requiring registration for lobbyists receiving over $5,000 in compensation per year – a revision that would replace the current time-based registration threshold of 30 lobbying hours undertaken during a three-month period. The proposed amendments to the ordinance also suggest the addition of new disclaimer requirements for solicitations by lobbyists, new identification obligations for lobbyists, and extending gift prohibitions to the clients of lobbyists. While the City Council has previously struck down reform efforts in this area, current Council President Paul Krekorian has indicated that he will make every effort to enact these reforms. 

San Diego Ethics Commission Fines Development Team $5,000 for Failing to File Expenditure Lobbyist Disclosure Reports – The San Diego Ethics Commission filed a stipulation against the development team responsible for the city’s new sports area, Midway Rising, for failing to properly file expenditure lobbyist disclosure reports. At issue were monthly payments to a political consulting firm that performed public outreach, created a project website, and presented to community leaders on behalf of Midway Rising. The City of San Diego requires entities spending $5,000 or more in a calendar quarter to directly influence municipal elections to file these disclosure reports within a month of the quarter’s end, and to include in such reports payments for public relations, outreach, advertising, and research. Since the omission was brought to light by the Commission, Midway Rising belatedly submitted expenditure lobbying reports for its past activities and settled its $5,000 fine. Though these disclosures are required for all qualifying entities, records demonstrate that only one other group has filed these reports in 2023.

South Dakota Lawmakers Want to Ban Spouses from Being Registered Lobbyists – The South Dakota Senate is considering a bill that would ban legislators’ spouses from acting as lobbyists in the state. The bill targets legislators’ spouses who are registered lobbyists and receive direct benefits from a lobbying firm. The rule would also comport with current state “revolving door” laws that prevent legislators from registering as lobbyists for two years after leaving office and with state conflict-of-interest laws that apply to spouses in select industries.

Texas State Rep. Chris Paddie To Stop Lobbying After Regulators Crack Down On Existing Loophole – The Texas Ethics Commission unanimously approved an advisory opinion last month that closed a loophole in revolving door restrictions placed on former lawmakers. A 2019 law co-authored by former Texas state Rep. Chris Paddie prevented former lawmakers from registering to lobby until two years after they last used campaign funds to donate to another politician. To get around this restriction and continue lobbing, Paddie had been reimbursing his campaign account with personal funds to cover contributions that would have triggered this revolving door restriction. Following the Commission’s condemnation of this tactic, Paddie has subsequently terminated his lobbying registration and is facing potential fines for violation of the provisions.

Nonprofit Compliance and Disclosure

'Dark Money' Opponents Want to Block Effort to Quash Arizona Law – Representatives of the Arizona Right to Know Act have asked Maricopa County Superior Court Judge Scott McCoy to reject a challenge to the state’s recently passed Proposition 211. Proposition 211 was approved three-to-one by voters in November of last year and would require entities spending over $50,000 on statewide campaigns or over $25,000 on other campaigns to disclose the original source of any contribution over $5,000. The Arizona Free Enterprise Club and the Center for Arizona Policy have challenged the law to prevent it from coming into effect, arguing that the disclosure requirements violate a privacy provision in the Arizona Constitution stating that an individual’s “private affairs” will not be disturbed. A hearing on the challenge has yet to be scheduled.

Pay-to-Play

Pay To Play: Hawai`i Moves To Expand The Ban On Contractor Campaign Donations – Members of the Hawai`i Senate Judiciary Committee passed a bill out of committee last month that, if signed into law, would significantly tighten the state’s presently lax pay-to-play laws. Currently, Hawai`i only bans donations to campaigns from businesses with state government contracts, leaving the owners, officers, and employees of businesses free to make campaign contributions under traditional state campaign finance laws. The proposed bill would seek to ban owners, officers, and their immediate families from donating to campaigns for the duration of a state or county contract, and originally proposed banning employees of contractors as well. Such language was removed from the Senate version of the bill, however, following the Hawai`i House Judiciary Committee’s decision to oppose a bill with similar language prohibiting all employees from of state and county contractors from giving to the campaigns of government officials.

The Courts and Free Speech

Tenth Circuit Tosses Out Challenge to Colorado’s Campaign Spending Limits – Last month a three judge panel from the U.S. Court of Appeals for the 10^th Circuit rejected a recent appeal seeking an injunction against the enforcement of Colorado’s uniquely low campaign spending limits. Since 2002, Colorado has had a state constitutional amendment in place limiting contributions to state legislative candidates to $400 per donor and contributions to state executive office candidates to $1,250 per donor. Candidates may, however, accept contributions twice those stated limits if they agree to curb their campaign’s political expenses. In 2022, three Republican Colorado lawmakers filed suit against the framework, arguing that Colorado’s contribution caps impinged upon their free speech rights. Plaintiffs’ injunction request was denied by the federal district court in early 2022, with U.S. District Court Senior Judge John L. Kane holding that the limits did not actually harm the plaintiffs, nor did the limits burden their First Amendment rights. Plaintiffs then appealed their case to the 10^th Circuit, which again denied the injunction on grounds that the request became moot with the passing of the 2022 elections.

Political Law Practice Pointers

This month’s Practice Pointers focuses on the benefits and drawbacks of engagement in the electoral and policymaking space. A quick look at the statistics regarding 2022 midterm election spending and federal lobbying expenditures highlights the importance of incorporating such activities into your organizations’ comprehensive business strategy.

In the 2022 midterms, political organizations spent $8.9 billion advocating for candidates who supported policies favorable to their organizational and economic goals. With the increasing cost of legislative seats at the federal level, it is more important than ever for organizations to stay active in the political arena in order to support leaders whose positions align with the interests of their industries, shareholders, employees, and customers. Similarly, with federal lobbying spending reaching all-time highs, it is extremely important for organizations to lean into government affairs and advocacy activities – either independently or through trade associations and other organizations – that effectively shape the policy and regulatory environment in a beneficial manner.

While political and policy engagement are crucial elements of any comprehensive business strategy, such activity is riddled with compliance concerns at the federal, state, and local levels.  As such, before working to take action in either space, organizations should ensure they have both internal and external support with regard to political law compliance issues. The Dentons Political Law Team regularly advises businesses, corporate entities, nonprofits, associations, and other groups on strategic political engagement and compliance matters, and is here to help you develop an effective government relations platform that maximizes impact and minimizes risk.

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